MAKING MOTOR INSURANCE CLAIMS

What are the considerations every motorist should be aware of? S. Gayathri takes a look.

Imagine this scenario: 18-year-old Chris has just obtained his probationary (P) driving licence. His father lets him borrow the car one day. Despite driving carefully, Chris meets with an accident. The car is badly damaged and needs to be towed. In a state of panic, he doesn't know who will pay for the damage.

Tow truck operators at the scene promise Chris speedy repair, hassle-free insurance claims processing and towing services -- without him having to pay a sen. But is that really the case?

The truth is, approval of motor accident claims are subject to terms and conditions that most of us overlook because we believe the insurance company will pay for everything.

"Motor insurance is for protection, but there are terms and conditions applicable to all policies, hence it's wrong to assume insurers will pay all damages and claims," says Fazan Ahmad, administration and insurance committee member of the Automobile Association of Malaysia (AAM).

Given that, it is pertinent for motorists to understand the two basic types of accident claims available and several general issues related to motor policies.

OWN DAMAGE (OD) CLAIMS
To some extent, the type of motor insurance policy you buy determines the kind of claim you can make. It also has a bearing on the processing and approval times.

According to Uni.Asia General Insurance Bhd, motorists with comprehensive policies usually have better claim options.

"Comprehensive policyholders who meet with accidents can make an Own Damage (OD) or even a third-party claim, depending on the nature of the accident and other applicable conditions," says Mohd Ariff Kassim, assistant general manager of Uni.Asia's claims department.

OD is available only for comprehensive policyholders-- it allows the insured to claim against his own policy for damage to his own vehicle.

"The distinct feature of an OD claim lies in the ease of the procedure. Because only the insured and his insurer are involved, claims are generally processed speedily and without much hassle," says Fadil Abdullah, assistant vice-president for general insurance claims at Malaysia National Insurance (MNI) Bhd.

In fact, completed OD claim forms with copies of supporting documents are usually assessed and approved within a few days to a week. However, note that OD claims usually result in the loss of your no claims discount (NCD).

"NCD on [policy] renewals are granted only if no claims are made under the policy. The insured’s OD claims and a third party's claim for injury and damage will affect the NCD during renewal," explains Uni.Asia's Mohd Ariff.

Whether you should make an OD claim depends on the outcome of police investigations into the accident. In Chris's case, if the accident was a hit and run, Chris's dad has no option but to file an OD claim to repair the damage -- provided he has a comprehensive cover and is willing to lose the NCD (if any), on renewal. If the car only has third-party coverage, Chris and his dad must bear the entire repair cost.

OD KNOCK-FOR-KNOCK
Unless you are willing to part with your hard-earned NCD -- which can reach 55% off your renewal premium -- and enjoy the fast-track claims settlement, OD claims may not be a good deal.

"The easiest way of preserving one's NCD is, of course, to remain a good driver for as long as you are a motorist. Admittedly, driving carefully doesn't stop accidents from happening. I can be a good driver but others may hit my car, it happens frequently," says Kong Shu Yin, general manager of operations, Kurnia Insurans (Malaysia) Bhd.

To safeguard the interest of drivers who are not at fault, there is now the OD knock-for-knock claims option.

Available only to comprehensive policyholders, it allows the insured to preserve and/or avoid losing his NCD while avoiding the delays often associated with making claims against a third party.

"This is for motorists involved in accidents that are not due to their own fault and are able to prove the claims, for example, with police findings," explains Giles Ward, president and CEO of AXA Affin Assurance Bhd.

Prior to the introduction of OD knock-for-knock claims, faultless motorists had to submit their claims to the third party (driver at fault)'s insurer and were subjected to delays that lasted for months.

According to the General Insurance Association of Malaysia (PIAM), OD knock-for-knock claim is the result of cooperation among motor insurers to better manage third-party accident repair claims.

PIAM executive director and secretary Lim Chia Fook says the introduction of OD knock-for-knock claims has significantly reduced the time taken to process and approve third-party claims.

However, bear in mind that third-party motor policies exclude coverage for injury or damage suffered by the insured and his vehicle -- thus, holders of such policies cannot file OD and OD knock-for-knock claims.

PANEL WORKSHOPS
Now that the claims have been approved, what about the repairs to your vehicle?

"Prompt claims settlement aside, quality of repairs is equally important as it concerns the safety of the vehicle and driver. To ensure quality workmanship and right pricing for the repairs done, we introduced the concept of panel workshops," says Lim of PIAM.

Before appointing panel workshops, PIAM carefully monitors and evaluates repairers who meet the industry's general standard of quality and other requirements. If successful, the selected repairers are given "PIAM-approved workshop" status. Individual insurers in the motor industry are free to appoint to their panel any repairer from the large pool of PIAM-approved workshops. Currently, most insurers make it compulsory for their policyholders to send vehicles for repairs to the company's panel workshops. Failing which, claims can be rejected. However, because the appointment of panel workshop is not mandatory for insurers, companies like MNI Insurance do not have exclusive panel workshops for policyholders. Instead, the insured are allowed to send their vehicles to any of the PIAM-approved workshops because these repairers also meet the requirements set by the company. Other companies prefer to stick with their own panel of workshops. "Having our own panel of workshops is definitely good for policyholders because we are able to better monitor and control their workmanship quality."

"The workshops are required to provide guarantees for their workmanship quality," adds Ward of AXA Affin.

The panel workshops' warranty on workmanship, ranging from six months to a year from the date of repair, acts as added protection for the insured. Referring to panel workshops is also good for another reason -- the repairers are very familiar with the insurance company's claims procedure and would normally handle all claims-related matters on behalf of the insured.

PAYMENT OF CLAIMS
Although procedures related to the submission and approval of most accident claims are quite standard, it doesn't mean that the insurer will pay 100% of the amount claimed. In some instances, insurers may not approve the claim at all or require the insured to bear part of the repair cost.

"The biggest fault of motor policyholders is their failure to understand the terms and conditions of their policies. We've repeatedly advised all motorists, AAM members or otherwise, to pay attention to important aspects of motor policies because failure to understand these terms will only affect them in times of need," stresses Fazan of AAM.

Basically, issues like the sum insured and type of policy are crucial in determining the benefits.

Similarly, conditions on loss of NCD, excess payment, critical damage to vehicles and application of the betterment policy (see sidebar) are factors that may result in the insured having to pay part of the claim.

Fazan adds that although the sum insured for vehicles depreciate annually, motorists must ensure that vehicles are insured based on the current market value.

Claims of vehicles that are under-insured by more than the allowable 10% limit are penalised by the "average condition". For example, the insurer will only pay 60% of the claims if the car is under-insured by 40%: The insured has to bear the remaining 40% himself.

Damage claims of grossly under-insured vehicles are subjected to the average condition -- whereby the sum insured is multiplied by the loss amount and divided by the current market value, before claims are approved.

For instance, apply the formula in this context -- a car is insured for RM25,000 (sum insured) multiplied by total repair costs RM3,000 (loss amount) divided by current market value of the car RM40,000 and you will get RM1,875 as the final figure.

Average condition applies only for accident claims of vehicles that are under-insured, thus in the scenario above, only RM1,875 will be paid by the insurer as repair costs while the policyholder bears the balance of RM1,125 (total repair cost is RM3,000).

"Over-insuring is also not a good idea because naturally the premiums are higher but in the event of a claim, insurers will only pay the maximum of the sum insured or current market value, whichever is lower," comments Kong of Kurnia Insurans.

CONCLUSION
A basic comprehensive policy generally covers loss or damage sustained by the insured's vehicle and third party's property damage and injuries, thus, motorists are always encouraged to purchase a comprehensive cover for as long as they can.

Motorists also have the option of insuring vehicles for special perils like flood, passenger liability and windscreen protection; claims under these special packages do not affect the NCD.

Most accident claims procedures are standardised but to expedite claims approval, a few insurers offer niche services like express claims counters for on-the-spot OD settlement (Kurnia Express), free towing services (most insurers) or even a pre-approved OD claims limit that doesn't require an adjuster's report.

Ironically, there isn't an industry-wide timeline set for claims processing but most insurers declare that claims are processed within days, provided all supporting documents are submitted.

Make the effort to know the standard terms and conditions of motor policies and compare them against what you have now. It will come in handy when you make a claim, renew the policy or move on to another insurer.

BOX 1: WHAT TO DO AFTER AN ACCIDENT
1. Note the registration number of vehicles involved, place and time, and name and contact numbers of drivers and their insurers, if possible
2. Note the names and addresses of any witnesses, extent of damage and injuries to third parties
3. Do not attempt to place fault
4. Contact panel workshop/insurer for tow truck services if your car is not drivable;
5. If it is drivable, take your car to the nearest police station, lodge a report and allow the police to take pictures of your car
6. Drive or have your car towed to a panel workshop for safe keeping and repair
7. Inform insurer/agent of the accident and name of the workshop
8. The panel workshop will help with claims submission and gather supporting documents from you

BOX 2: WHAT'S NCD?
NO CLAIMS DISCOUNT (NCD) , or No Claims Bonus (NCB) , is a discount (in percentage) on premiums given to the insured if no claims -- either by the insured or third parties -- have been made under the policy. NCD is a reward for safe drivers, in appreciation of their good driving ethics. The rate of NCD for private cars range from 25% to 55%. Making own damage (OD) claims affect the insured's NCD, while OD knock-for-knock claims help preserve the NCD. The minus point under the current NCD system is that a single claim made against a policy results in the insured losing his entire savings on renewal premiums; a person enjoying the maximum 55% NCD for years will lose it.

BOX 3: COMPENSATION FOR ACTUAL REPAIR TIME
IT IS BAD ENOUGH that your car is damaged but you also need alternative transport while the vehicle is being repaired. However, you have a form of relief -- compensation. Compensation for actual repair time -- commonly known as loss of use claim -- is a third-party claim and is available to motorists who are not at fault.
The claim must be submitted to the third party's insurer with supporting documents, photographs of the damaged vehicle, police report and findings. The claim amount per day is pre-determined based on the vehicle's cylinder capacity, as set by Bank Negara. The amount is then multiplied by the reasonable number of days needed to repair the vehicle, as indicated by the adjuster.
Comprehensive policyholders claiming for own damage (OD) are not eligible for this compensation while OD knock-for-knock claimants must submit the loss of use claim to the third party’s insurer. Motorists with third-party insurance may also claim for this compensation.

BOX 4: WHAT IS EXCESS?
EXCESS IS THE AMOUNT an insured has to pay from his own pocket. This is imposed to deter motorists from making small claims on their policy. Motor policies for private vehicles are subjected to two types of excess. The compulsory excess -- a standard provision for all private motor policies-- amounting to RM400 is applicable if claims for damages are made in a situation where the driver: Is not named in the policy; Is below 21 years old; Holds a probationary driving licence; and/or Has less than two years' driving experience. The other excess is charged at the discretion of the insurer, based on certain business considerations. The flexible excess is often applied where vehicles are five years and older (which are considered high-risk in terms of being accident-prone), luxury cars and/or those that incur high costs of repair. Usually, insurers do not impose flexible excess on new vehicles sold in mass quantities (like Proton) and private cars below 2,000cc. It varies according to the insurer's underwriting policies but the amount charged is based on Bank Negara's guidelines.

BOX 5: BETTERMENT ON NEW PARTS & CRITICAL DAMAGES
ALTHOUGH COMPREHENSIVE covers offer better protection, they are also subject to terms and conditions that are often overlooked. Examples are the betterment on new parts policy and critical damages. Betterment on new parts policy applies strictly to private vehicles aged five years and older, in line with the principle of indemnity. As the principle states that the insurer will compensate for loss by putting the vehicle back into the same position it was just before the accident, the policy of betterment comes into play. In practice, betterment is executed only if damaged vehicles are repaired using brand new parts; this results in the cost of the new parts being apportioned between the insurer and policyholder. Also called "old-for-new," the betterment policy's proportioning of cost for new parts must be in accordance with Bank Negara's endorsed scale (according to age of vehicle) and ceiling rate (cost in percentage). Industry players say the application of betterment is left to the discretion of insurers although most of them have already adopted the policy. If the insured disagrees with the proportionate costs, cars aged five years and above will be repaired using second-hand parts of the same age -- giving rise to issues of compromised standard of parts used and overall vehicle safety. So, that's for older cars. But what about cars, old or new, that are involved in fatal accidents? Do insurers actually bear the entire cost of such claims? The answer is both yes and no: Decisions on these cases usually rest on the discretion of insurers. Badly damaged vehicles -- particularly those with repair costs that exceed 50% of the sum insured -- will most likely not be repaired. Two reasons are cited for this: Cost-effectiveness and roadworthiness of the repaired car. It is said that repair claims amounting to 50% or more of the sum insured are normally settled with strict adherence to industry guidelines -- insurers usually offer policyholders the total sum insured or the current market value of the vehicle, whichever is lower. If the settlement is accepted, the policy is written-off and the damaged vehicle belongs to the insurer. Otherwise, it is back to the drawing board and negotiations continue.